The World Trade Organization (WTO) has ruled that China improperly curbs imports of books, music, and movies. While it is tempting to view the ruling as a victory for copyright law, it does not mean the competitive playing field will become level.
The U.S. Complaint Against China
In 2007, the United States complained to the WTO that China’s closed markets violated WTO agreements, including the General Agreement on Tariffs and Trade. Specifically, the U.S. argued that having to sell books, DVDs, and other products to Chinese state-owned enterprises meant companies cannot directly reach the consumer. Indirect distribution increases prices and limits supply, thereby encouraging piracy. Producers and owners of the creative works have little control over their product. The U.S. also argued that Chinese censorship of books violated GATT, and that censorship of online music discriminated against imported CDs.
The WTO Ruling
The 491 page WTO report concludes that import barriers on products like DVDs and reading materials are inconsistent with WTO protocols. So are rules that prevent foreign suppliers from directly distributing products to Chinese consumers. The WTO disagrees with the U.S. contention that China’s criminal laws punishing piracy are inadequate.
China is still deciding whether to appeal.
The Effect On Piracy And Competition
U.S. Trade Representative Ron Kirk hailed the decision as a “significant victory for America’s creative industries” because it helps ensure “market access for legitimate U.S. products in the Chinese market.”
The supply of authentic goods available to Chinese consumers will increase. Yet, a greater supply of legitimate, copyrighted goods does not necessarily translate into lower levels of piracy. Being cheaper, pirated goods will remain attractive to many consumers. Unless there is a difference in quality, or unless Chinese consumers suddenly become willing to pay more for the legitimate books or DVDs, piracy will remain common. Therefore, it is uncertain whether the competitive playing field will be leveled as Ambassador Kirk contends.
The ruling does not change China’s quota of twenty foreign movies per year. Legitimate DVDs or online versions of twenty movies will not satisfy China’s demand for foreign films. Piracy of other films should remain high.
Conclusion
Ultimately, the effect of the WTO ruling on the competitive landscape will depend on how China responds. Will China appeal the ruling? Will China comply with the WTO ruling if it is appealed and upheld? How long will it take for China to comply? Will China continue to crack down on copyright piracy? All of these factors suggest that any changes in the price and supply of foreign copyrighted materials in China will be slow and evolutionary.
Douglas Y. Park
Twitter: @DougYPark